Korea and U.S. finalize renegotiated FTA

Seoul’s main goal was to minimize lawsuits against government

Sept 04,2018

A revised free trade agreement (FTA) between Korea and the United States will include a protocol that would minimize legal disputes between investors and national governments, according to Korea’s Trade Ministry on Monday.

Korea’s Ministry of Trade, Industry and Energy on Monday revealed the result of the renegotiation done by the two countries of the bilateral pact.

For Korea, one of the main issues was how to limit lawsuits lodged against the Korean government by American private investment firms.

The revised pact would prohibit private investment firms from filing lawsuits against the governments if the cases are already being reviewed elsewhere based on other bilateral or multilateral pacts.

According to the revised agreement, an investor “may not initiate or continue a claim … if a claim involving the same measure or measures alleged to constitute a breach under Article 11.16 and arising from the same events or circumstances.”

“This is perhaps the most important renegotiation we made [from the Korean government’s perspective],” said an official from the Korean Trade Ministry.

Under the free trade pact that went into effect in 2012, U.S. investors have the right to use an international tribunal to resolve investment disputes as Elliott Management, a U.S. activist hedge fund, has done against the Korean government.

As recently as last July, the U.S. hedge fund lodged a suit against the Korean government in an investor-state dispute settlement seeking as much as $770 million in compensation for damages incurred by the Park Geun-hye administration’s alleged intervention in a controversial merger between Samsung C&T and Cheil Industries in 2015.

Elliott Associates, one of the two flagship funds of Elliott Management, once had more than a seven-percent stake in Samsung C&T.

The two countries also agreed that hedge funds, like Elliott, cannot file a lawsuit on the grounds that an action taken by the government has failed to treat the company the same as its “nationals” if the action was “on the basis of legitimate public welfare objectives.”

The original version of the free trade pact stipulates that foreign investors must be treated the same as the nationals of each country.

“Elliott already filed the lawsuit in July so the revised free trade pact will have no effect on the case,” said the official from Korea’s Trade Ministry.

For the United States, a further opening of Korea’s auto market was its main goal.

As announced by Korea’s Trade Ministry in March, the annual number of U.S.-made vehicles that can be sold in Korea without having to meet domestic safety guidelines will be doubled from 25,000 cars per brand under the terms of the FTA to 50,000.

But American vehicle imports don’t even meet the earlier 25,000 quota. The U.S. government will also extend a 25-percent tariff on Korean pickup truck imports until 2040. It was supposed to end by 2020.

The government will canvass public opinion on the renegotiated pact through Sept. 10, and then it will go for parliamentary approval.